Draghi Push Seen Delivering $635 Billion With QE Forecast

Jan 18, 2015: Mario Draghi is likely to announce a 550 billion-euro ($635 billion) bond-purchase program this week and won’t skimp too much on the details, economists say.

The European Central Bank president will make his biggest push yet to steer the euro area away from deflation by announcing quantitative easing on Jan. 22, according to 93 percent of respondents in a Bloomberg News survey. The median estimate of the size of the package tops the 500 billion euros in models presented to officials this month.

Draghi’s goal at a press conference after the Governing Council gathers will be to convince investors he has a strategy big and bold enough to reinvigorate the moribund economy. Speculation over his plans has already sent the euro to an 11-year low, with the fund flows probably contributing to the Swiss National Bank’s shock decision to end a cap on the franc.

“Market expectations now are stellar,” said Attilio Bertini, head of research at Credito Valtellinese SC in Sondrio, Italy. “No disappointment is admitted. The ECB’s next move should be pervasive, risk-transferring and long-lasting.”

The proportion of economists predicting QE at this week’s meeting has risen from 37 percent in a survey carried out after the last monetary-policy meeting on Dec. 4. This month’s survey polled 60 economists and was conducted from Jan. 9 to Jan. 16.

German Criticism

With plunging oil prices tipping the euro-area inflation rate below zero for the first time in more than five years, policy makers have been arguing in media interviews and speeches over how to react. Much of that has been in Germany, where criticism of QE is strongest.

Bundesbank president Jens Weidmann has claimed cheaper energy already provides stimulus to the economy. Executive Board member Benoit Coeure says it might not be enough.

“Anything that happens to headline inflation rates has potential to feed into long-term inflation expectations and that’s what we have to be wary of,” Coeure said in comments published on the ECB’s website last week. While no decision has been taken on QE, “for it to be efficient it would have to be big,” he said.

About half of economists in the Bloomberg survey forecast the ECB will announce a total purchase size, and 15 percent said it’ll limit itself to a monthly amount. Monthly buying could continue for a predetermined period, or until inflation is back at the ECB’s goal of just under 2 percent. Consumer prices fell an annual 0.2 percent last month.

Source bloomberg.com